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Businesses Decide the Best Course Is to Do Very Little

Friday, 06 July 2012 11:36 AM

INDICATOR: June Employment Report

KEY DATA: Payrolls: +80,000; Unemployment Rate: 8.2% (Unchanged)

: “We may be suffering through a major heat wave but the economy is cooling off.”

WHAT IT MEANS: With so much uncertainty about the world economy and politics, businesses have decided the best course is to do very little. Nothing says that more than the payroll numbers, which have gone nowhere over the past three months.

The June jobs increase was disappointing yet also just about at the spring average of 75,000. And the details were just as negative. What hiring occurred was for temporary help, which made up nearly one-third of the total increase. Even the normal job creators were not in the game. There was a rise in health care workers, but much less than usual.

While manufacturers continued to hire, construction firms didn’t do whole lot. That was surprising given the housing starts numbers. In the services sector, retailers, transit and information firms all posted cut backs. We must have eaten out a lot as there were an awful lot of new people working in restaurants.

As usual, the government sliced and diced but there was an interesting change as local governments strangely moved into hiring mode. That was probably an aberration. Meanwhile, the spending cuts in education are taking a major toll on school employment, which was off sharply once again.

About the only good news was on the income front where longer hours and rising wages bode well for wages and salaries. As for the unemployment rate, it stayed at 8.2%, which is way too high.

MARKETS AND FED POLICY IMPLICATIONS: I wrote Thursday that the labor market specific indicators seemed to point to better job gains than forecast, and that turned out not to be the case. So, either the BLS data are in for a major revision or we simply got some false positives on the blood tests.

Regardless, this is not a good report and it reminds everyone that confidence matters. In June, the European debt issue reached a boil and a meltdown could not be ruled out. That had to have a major impact on business confidence. Waiting for the health care bill didn’t help.

The ramping up of the presidential election campaign and the uncertainty about how the fiscal cliff will be avoided is also playing on business executives’ minds. In other words, even if demand is rising, if you cannot be certain that increase will be sustained, you don’t hire and that is what is happening.

We are back in the ugly cycle of deteriorating confidence causing sluggish hiring which is limiting income and spending growth which is reinforcing the view that hiring is unnecessary. Until we break that cycle, and it is not clear what would do that, we are stuck in this slow growth economy.

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Friday, 06 July 2012 11:36 AM
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